Have investors learned anything?

Opinion: When greed eclipses fear, it’s time to watch out

HowardGold

I was in a pretty good mood last weekend until I cast my eye upon Saturday’s Wall Street Journal, whose front page ran an article entitled “Individual Investors Pile into Market as Stocks Rise.”

The headline was bad enough; the story nearly gave me heartburn.

It sported the usual statistics — trading volume is way up at eTrade Financial (Nasdaq: ETFC)
ETFC, +1.12%
, Charles Schwab
SCHW, +0.26%
and TD Ameritrade Holding
AMTD, +0.11%
; margin debt hit an all-time high in December, and all this occurred after the Standard & Poor’s 500 index
SPX, -0.88%
had soared 171% from its March 2009 lows.

But it was the anecdotes about what investors were doing that were most disturbing.

A 31-year-old equipment salesman from Louisiana makes two trades an hour from his brokerage account. That’s not two trades a week or even two a day, but two an hour — or, by my count, over 3,000 a year.

Of course, he’s also contemplating quitting his job to become a full-time trader. Sound familiar?

Then there was a 63-year-old IT professional (I’m not naming names here to spare them embarrassment) who lost more than half her money when the dot-com bubble burst and is now getting back in the game, “moving into and out of cash quickly as she tries to get a feel for which direction the market is headed.”

Robo-advisors may change the advisory industry

(3:12)

These online financial advisory services are reinforcing a different set of expectations among their clients by offering lower costs and greater transparency, but they do have their limitations, says Grant Easterbrook, senior research associate at Corporate Insight.

Despite all the sales pitches, active trading is a disaster for most of its practitioners: Extensive research using data from millions of trading accounts found that 99% — that’s no typo — of active traders lost money in the markets.

And yet, here we go again.

So, we need to ask, have investors learned anything in the last 15 years, which saw the dot-com bust of 2000, followed by the real estate bubble and then the biggest financial crisis and deepest recession since the 1930s?

Well, some have but many haven’t.

I spoke with John Hauserman, a certified financial planner in Marriottsville, Md., and author of “RetirementQuest: Make Better Decisions,” whose clients are mostly “baby boomers on both sides of retirement.”

“After the dot.com bust, everybody seemed to have learned their lesson — they wouldn’t touch stocks,” he told me.

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